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Telecom companies, which are already sailing in troubled waters, may face another jolt in the form of tax obligation on adjusted gross revenue (AGR) dues. Reports suggest that the telecom companies have received notices from the tax department for the payment of service tax and GST on their AGR dues.
Both the GST and the prior law appear to be clear about the fact that companies are liable to pay taxes on spectrum/licence fees payable by them.
However, it is not clear whether these companies will be eligible to take input tax credit (ITC) under the GST regime, of the service tax liability on AGR dues under the previous regime.
Tax obligation
Both the GST now, and the earlier tax regime (April 1, 2016 to July 1, 2017), state that companies receiving services from the government are liable to pay taxes under the reverse charge mechanism. Under this, the service receiver is liable to pay taxes; generally, indirect taxes shall be paid by the service provider to the government.
Thus, in this case, telecom companies would be liable to pay taxes on services (spectrum and licence services) receivable by them from the government (here, the Department of Telecommunications) both during the pre-GST period (April 1, 2016 to June 30, 2017) and from July 1, 2017, when the GST came into force.
“There doesn’t seem to be any doubt on the tax liability of the telcom companies with respect to recent AGR dues,” says Parag Mehta, Partner, NA Shah Associates. The companies may not only have to cough up the tax dues, but also pay interest on it, which could range from 15 to 18 per cent of the outstanding tax amount.
However, when taxes are paid on services received as inputs, companies can usually claim ITC, offsetting their future tax liability on services provided by them. But, in this case, this relief seems unlikely, at least to the extent of service tax payable prior to the introduction of GST.
No provision for ITC
The current GST law does not seem to have any provision that allows companies to claim ITC for the taxes liable under the earlier regime (excise/service tax).
Thus, while there is no doubt about the eligibility of telecom companies to claim ITC on GST payable, it is not very clear if they can make a similar claim on the service tax payable by them now. Also, the current case is not covered under any of the situations for which refund-of-tax option is available. Refund for taxes paid, under the pre-GST/GST regime, is allowed only in a few instances, including exports or inverted duty structure.
Mehta opines that it is unlikely that the government will provide any relief from tax liability to the telecom operators, as it might provoke demands from other industries as well.
Niraj Bagri, Partner, Dhruva Advisors, says companies may need to approach higher courts to obtain relief.
Little relief
However, getting the benefit of ITC for service tax payable will not make life any easier now for telcos. They already have a high unutilised balance of ITC as a result of paying input taxes on their capital investments, spectrum and licence fee earlier — they haven’t been able to set these off against tax liability on the services provided to customers.
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